Advanced Search
MyIDEAS: Login

Culture, caution, and trust

Contents:

Author Info

  • Breuer, Janice Boucher
  • McDermott, John

Abstract

Trust is an important determinant of economic development. Understanding its origins is therefore critical. We develop a principal-agent model with heterogeneous players to determine the aggregate amount of trustworthiness and trust in a society. People are distributed according to their preference toward caution, which we model as loss aversion. The first two moments of the distribution across principals and agents—along with institutional quality—are critical to the process by which trustworthiness and trust are formed. A direct effect suggests that more caution leads to less societal trust. An indirect effect of greater caution, working through trustworthiness, leads to more trust. Paradoxically, the net effect is almost always positive. The results are similar when we use expected utility theory. Different distributional assumptions can influence the results.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0304387811000204
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 97 (2012)
Issue (Month): 1 ()
Pages: 15-23

as in new window
Handle: RePEc:eee:deveco:v:97:y:2012:i:1:p:15-23

Contact details of provider:
Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Trust; Risk; Caution; Culture; Trustworthiness;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Breuer, Janice Boucher & McDermott, John, 2009. "Trustworthiness and economic performance," MPRA Paper 16777, University Library of Munich, Germany.
  2. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "Does Culture Affect Economic Outcomes?," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 23-48, Spring.
  3. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
  5. Tabellini, Guido, 2007. "The Scope of Cooperation: Values and incentives," CEPR Discussion Papers 6534, C.E.P.R. Discussion Papers.
  6. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  7. Dean S. Karlan, 2005. "Using Experimental Economics to Measure Social Capital and Predict Financial Decisions," American Economic Review, American Economic Association, vol. 95(5), pages 1688-1699, December.
  8. Herrmann, Benedikt & Zeckhauser, Richard Jay & Bohnet, Iris, 2009. "Trust and the Reference Points for Trustworthiness in Gulf and Western Countries," Scholarly Articles 4417252, Harvard Kennedy School of Government.
  9. Rajan, Raghuram G & Zingales, Luigi, 2006. "The Persistence of Underdevelopment: Institutions, Human Capital or Constituencies," CEPR Discussion Papers 5867, C.E.P.R. Discussion Papers.
  10. Spolaore, Enrico & Wacziarg, Romain, 2006. "The Diffusion of Development," CEPR Discussion Papers 5630, C.E.P.R. Discussion Papers.
  11. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  12. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
  13. Iris Bohnet & Fiona Greig & Benedikt Herrmann & Richard Zeckhauser, 2007. "Betrayal Aversion: Evidence from Brazil, China, Oman, Switzerland, Turkey, and the United States," Discussion Papers 2007-08, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  14. Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter.
  15. Bohnet, Iris & Zeckhauser, Richard, 2003. "Trust, Risk and Betrayal," Working Paper Series rwp03-041, Harvard University, John F. Kennedy School of Government.
  16. Ernst Fehr & Joseph Henrich & Robert Boyd, 2003. "In Search of Homo Economicus: Behavioral Experiments in 15 Small- Scale Societies," Microeconomics 0305009, EconWPA.
  17. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  18. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May.
  19. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May.
  20. Laura Schechter, 2005. "Traditional trust measurement and the risk confound: An experiment in rural paraguay," Artefactual Field Experiments 00106, The Field Experiments Website.
  21. Nava Ashraf & Iris Bohnet & Nikita Piankov, 2006. "Decomposing trust and trustworthiness," Experimental Economics, Springer, vol. 9(3), pages 193-208, September.
  22. Jonathan Temple & Paul A. Johnson, 1998. "Social Capability And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 965-990, August.
  23. Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 769-97, August.
  24. Paola Sapienza & Anna Toldra & Luigi Zingales, 2007. "Understanding Trust," NBER Working Papers 13387, National Bureau of Economic Research, Inc.
  25. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  26. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  27. Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2007. "Estimating Risk Attitudes in Denmark: A Field Experiment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(2), pages 341-368, 06.
  28. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  29. Breuer, Janice Boucher & McDermott, John, 2009. "Trust and the Distribution of Caution," MPRA Paper 18112, University Library of Munich, Germany.
  30. Scheinkman, Jose A. & Soutter, Christine L. & Glaeser, Edward Ludwig & Laibson, David I., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
  31. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
  32. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  33. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
  34. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, vol. 70(2), pages 737-753, March.
  35. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  36. Buchan, Nancy & Croson, Rachel, 2004. "The boundaries of trust: own and others' actions in the US and China," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 485-504, December.
  37. Mohammed Abdellaoui & Han Bleichrodt & Olivier L’Haridon, 2008. "A tractable method to measure utility and loss aversion under prospect theory," Journal of Risk and Uncertainty, Springer, vol. 36(3), pages 245-266, June.
  38. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Christopher Bidner & Ken Jackson, 2011. "Trust and Vulnerability," Discussion Papers 2012-09, School of Economics, The University of New South Wales.
  2. Hassani Mahmooei, Behrooz & Parris, Brett, 2012. "Dynamics of effort allocation and evolution of trust: an agent-based model," MPRA Paper 44919, University Library of Munich, Germany.
  3. Breuer, Janice Boucher & McDermott, John, 2013. "Respect, responsibility, and development," Journal of Development Economics, Elsevier, vol. 105(C), pages 36-47.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:97:y:2012:i:1:p:15-23. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.